BlackBerry's sales miss, but reports a core profit

BenDummett

BlackBerry Ltd. posted a surprise third-quarter operating profit, suggesting its cost-cutting efforts are paying off, but its disappointing revenue performance underscored the challenges the smartphone maker still faces in winning back traditional business customers.

The company reported a net loss of $148 million, or 28 cents a share, narrowing sharply from a hefty loss of $4.4 billion, or $8.37, a year earlier. The year-earlier results included sizable asset-impairment and inventory charges related to its unsuccessful expansion into the consumer device market.

Adjusted to exclude items, BlackBerry earned 1 cent a share, better than the loss of 5 cents that analysts were predicting, according to a Thomson Reuters poll, and better than the previous quarter's small operating loss. But revenue came in at $793 million, down about 34% from a year earlier and well below analyst expectations for revenue of about $932 million.

After a failed attempt last year to compete with Apple Inc., Samsung Electronics Inc. and other device makers in the consumer market, BlackBerry is trying to revive its fortunes by selling devices, mobility security software and services to customers in the health-care, government and professional and financial sectors.

Chief Executive John Chen, the strategy's architect, said BlackBerry's ability to generate positive cash flow in the latest quarter signals that turnaround plan is on track. Since taking over the top job a little more than a year ago, Mr. Chen has moved quickly to outsource manufacturing of smartphones to reduce inventory risk and to hit cost-cutting milestones ahead of schedule. He has also launched new devices and security software on time, lending further credibility to his effort.

The company said it recognized hardware revenue on about 2 million devices in the latest period. The third quarter ended Nov. 29, before the launch of BlackBerry's newest device earlier this week. The Classic is meant to lure back customers with traditional BlackBerry features like a physical keyboard and trackpad. In September, it launched its square-shaped Passport device aimed at professionals who are also early adopters of technology.

BlackBerry needs to sell 10 million phones a year to make a profit from the device business. In the first nine months the company has recognized revenue on a total of 5.7 million phones, indicating it needs to generate revenue on 4.3 million phones in its fourth quarter for this business to break even.

The company's cash position was unchanged from the previous quarter at $3.1 billion.

Separately BlackBerry said it closed the purchase of Germany's Secusmart GmbH for an undisclosed amount. The company's acquisition of the encryption technology developer is part of Mr. Chen's attempt to regain mobile business and government customers from the sale of mobile security software and services. BlackBerry aims to double software sales to $500 million in the next fiscal year from a projected $250 million this year.

Write to Ben Dummett at ben.dummett@wsj.com and Carolyn King at carolyn.m.king@wsj.com

Intraday Data provided by SIX Financial Information and subject to terms of use. Historical and current end-of-day data provided by SIX Financial Information. All quotes are in local exchange time. Real-time last sale data for U.S. stock quotes reflect trades reported through Nasdaq only. Intraday data delayed at least 15 minutes or per exchange requirements.